Currency markets traded within a narrow range overnight, with participants waiting for the US data drop to determine the direction of the greenback, and the associated impact it would have on its crosses. The yen strength witnessed yesterday on the back of comments from the Prime Minister Abe’s advisor has somewhat stalled, with Hamada clarifying his remarks that the 105 level for the USDJPY exchange rate was acceptable based on purchasing power parity (PPP), and wasn’t suggesting the current spot level of 120 was unacceptable. Hamada went on to say that he wasn’t suggesting the BoJ ease further at their April meeting, but the central bank does have further room to expand their asset purchase program, which if executed, would lead to further JPY weakness that would widen the PPP gap. Given the recent comments from Kuroda, and the minutes from the last policy meeting that were released yesterday, it seems as if the bank isn’t in a hurry to tweak its current pace of expansion, though the absence of constructive inflation expectations make one wonder how long the BoJ will be able to hold out until they either have to alter their inflation pledge or add further stimulus to try and jump-start consumer prices. USDJPY is pivoting just below the powerful magnet-like 120 figure ahead of US retail sales, while the Nikkei was essentially unchanged on its session.
The pound has managed to recover off its early morning lows, getting hit early after inflation for the month of March came in lower than expected, with the core reading printing at 1.0% compared to the last twelve months, falling short of the 1.2% increase that had been forecasted. Headline consumer prices were virtually unchanged but did dip into deflationary territory with an annualized print of -0.01%, adding to the downward pressure on GBPUSD, especially as election uncertainty continues to hang like a dark storm cloud over the pair. With inflationary pressures giving the Bank of England some breathing room to remain accommodative and likely not having to move on raising rates until at least 2016, combined with ongoing uncertainty surrounding the upcoming election, we expect the pair to continue to trade with a downward bias. GBPUSD has regained some ground to trade in the mid-1.46s, while the FTSE is the only major European index to be having a positive session in equity markets ahead of the North American cross.
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